How They Failed Us
By Michael Grunwald/Washington
Trust us, said the voices of Washington.
First the Bush Administration: Trust us! We'll end gridlock in Washington. We have surpluses as far as the eye can see. We'll find the weapons of mass destruction; we'll be welcomed as liberators; the insurgency is in its last throes. We don't torture. Nobody thought the levees would break; FEMA is doing a heckuva job; we'll do what it takes to rebuild. The economy is fundamentally strong, and more tax cuts will make it stronger. And we can save Social Security by letting you invest your benefits in the market.
Then the Democrats: Trust us! Now that we've taken back Congress, Washington is going to change. We'll end the war, get the lobbyists out of the back rooms, show the country we know how to govern.
As crisis has gripped the American economy, with equity markets roiling and credit markets seizing up, Washington went to the well once more, as a lame-duck President joined Democratic and Republican congressional leaders to ask Americans to trust them with a $700 billion Wall Street rescue package. But the well of trust had long run dry. Outraged calls overwhelmed Capitol Hill switchboards, and on Sept. 29 the bailout failed in the House, panicking the markets anew. Washington is still likely to find a fix for the credit crisis, but after a series of corruption scandals and a longer series of gaps between deeds and words, its own credibility crisis might take longer to repair.
Americans are always skeptical of politicians, but the financial meltdown has made it clear they no longer believe much of anything Washington's current batch of news-cycle-obsessed, responsibility-dodging wolf criers have to say. After eight years of George W. Bush's supremely confident but frequently wrong statements about everything from WMD to the inherent goodness of Vladimir Putin--and after former Bush press secretary Scott McClellan confessed the irrelevance of truth to his p.r. strategy--his television appearances are now widely ignored, and his approval ratings have touched an all-time low of 23%, according to a new TIME poll. His Treasury Secretary, former Goldman Sachs CEO Henry Paulson Jr., wasn't a much more compelling pitchman for near absolute power to help his former Wall Street colleagues; his public warnings that disaster was imminent but that the evidence had to remain secret were reminiscent of antiterrorism officials who raised the threat level to orange but refused to tell us why. Even the old claim of a rare bipartisan agreement didn't move the needle, chiefly because the approval rating of Congress has drooped to the teens.
The two presidential nominees have cultivated reputations as change agents and truth tellers, but their tepid, hedged support for the emergency package didn't look reassuring either. Obama has taken a cautious and detached approach, articulating principles--transparency, oversight, limits on golden parachutes, protections for taxpayers and homeowners--but mostly staying out of the way. He didn't really act like a leader, but he doesn't hold a leadership position, and so far voters seem to appreciate his cool response. While Washington Mutual and Wachovia were disappearing and investment banks were going extinct overnight, Obama was pulling ahead in the polls.
That may be because McCain took a frenetic, borderline erratic approach to the crisis, thrusting himself into the negotiations to very little effect. First he announced that he would suspend his campaign to salvage the bailout talks and would skip the first presidential debate unless negotiators hammered out a deal--although he didn't seem to suspend much, and the talks had been going pretty well without him. They blew up only after he dragged the circus of presidential politics back to Washington and left the impression that he agreed with House Republicans who opposed the deal. Then McCain announced he would debate after all because the stalled negotiations were back on track, although in fact the on-track negotiations had stalled. They unstalled after he left, and McCain quickly claimed credit--only to see a majority of House Republicans crater the deal on the floor.
The Credibility Gap
McCain has proclaimed this crisis too important for partisan politics--at the same time he was releasing an ad blaming it on Democrats in general and Obama in particular--but in modern Washington nothing is too important for partisan politics, especially a month before an election. Members in tight races don't think a lot about statesmanship; they think about survival. Even if House Speaker Nancy Pelosi and House minority leader John Boehner wanted to unite their caucuses behind a bill they thought the country needed, they don't have the power of a Sam Rayburn or a Tom DeLay to ramrod their members into line. In fact, with dozens of Republicans facing stiffer-than-normal challenges this year and House Democrats enjoying a $40 million financial advantage, Boehner publicly refused to stiff-arm his backbenchers, and two-thirds of his caucus voted against the bill. And Pelosi, in a partisan speech, was not exactly a tower of political courage either, although if any Republican voted against the bill because of her speech--as some GOP leaders believe was the case--it would take partisan sensitivity to ridiculous new lows. While it's true that the Democrats could have passed the measure themselves, it was an Administration bill, moderated through a series of bipartisan compromises. And it was striking to see House Republicans distancing themselves from Bush now that the time had come to clean up the mess, because for eight years they've been his most loyal supporters on the economy, on Iraq, on just about everything except his efforts to rein in earmarks and farm subsidies.
Democrats control Congress, which was supposed to change everything; they could have stepped up, passed their own package and dared Bush to veto it. But it's easy to see why they didn't: they don't want to face a populist backlash alone. Revulsion at a Wall Street bailout has crossed ideological lines, with liberals as disgusted by handouts to irresponsible bankers as conservatives are by a socialist solution to capitalist problems. On the Hill, constituent phone calls ran 100 to 1 against the Paulson plan, and most vulnerable incumbents in both parties voted against it despite all the doom-and-gloom warnings about the devastating consequences. It's times like these that call for presidential leadership, and Bush no longer has many followers, which is why his spokesmen are so busy counseling against finger-pointing, just as they were after the foul-ups in dealing with Hurricane Katrina.
Part of the problem was the lousy job Bush and Paulson did selling their plan to relieve banks of their toxic loans. They failed to brand it as an economic recovery plan instead of a bailout, a surprising mistake for an Administration renowned for giving initiatives perfumed names like Healthy Forests and Clear Skies. They began by demanding almost Napoleonic levels of authority, although they later compromised on that. They released the $700 billion figure without making it clear that the Treasury can eventually get most of the money back or even turn a profit if the economy rebounds and those loans become less toxic. And while they keep repeating that the plan will help Main Street as well as Wall Street, they didn't make the case until all was nearly lost that the credit crunch endangers loans for cars, homes, farms and businesses--which in turn endangers millions of jobs and pensions. "I begged them to explain this to the guy on his couch, and they never did," says Congressman Steve LaTourette, an Ohio Republican in a swing district who voted against the bailout. "They never explained why they needed all this money in a simple way to the guy with the 401(k), the guy with a small business who already pays a lot in taxes." In an interview with TIME, Paulson agreed that "we just haven't communicated as well as we need to."
But the credibility problems are more about the messengers than the message. Paulson is not a political veteran, and he was asking for the authority to do things he's been insisting for months were unnecessary. "I cannot ignore that many of the people sounding the alarm are the same ones who recently said things were under control ... that stronger government oversight was unnecessary and counterproductive," Democratic Congressman Mark Udall, now a Senate candidate in Colorado, said after voting no.
After the Sept. 29 House vote, the Administration found a new and much more effective spokesman for its case that Wall Street chaos was bad for everyone: the Dow Jones industrial average. It plunged 778 points, and suddenly calls and e-mails to LaTourette's office that had been running 200 to 1 against the bailout leveled out. He said half the callers were thrilled with his no vote but "the other half are looking at their 401(k)s drop[ping] $50,000 in a day, and they call and scream at me and say, You rat bastard, I'm never voting for you again!" Representative Elton Gallegly, a 64-year-old California Republican who voted no, said his hostile-call ratio went virtually overnight from 40 to 1 to a mixed bag--and he can understand why, because he lost $50,000 in savings on Monday. "And I'm getting to the point in my life where I can't start over," he says.
If that message begins to get through over the next few weeks, this low point in finance and politics could be a starting point for national renewal. The plan's supporters hope that a swift injection of capital into the financial system will help Wall Street start over so it can once again lubricate the wheels of the national economy. And come November, Washington will get its own chance to start over.
With reporting by Rita Healy/Denver, Christopher Maag/Cleveland, Jay Newton-Small/Washington, Karen Tumulty/Washington, Michael Scherer/Washington